I'm actually having this problem too. I was looking for someone who had the same problem because I knew there had to be one.

Anyway, I think it's because of .rel files though I'm still really new to this so I'm probably wrong.
I installed about 10 stage hacks the other day and all the stages I used a .rel on freeze and make the horribly piercing noise he's describing.
I got any stage I installed on Final Destination to work and that's pretty much it.
However I put a stage over mariobros (The FAMICON level) and the music I set for it worked, but it still showed the mariobros level.
I hope I didn't hijack your thread, just trying to add my bit.